QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

For the Quarterly Period Ended March 31, 2016

Or

¨

TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

For the transition period from _______________ to
_______________

Commission file number: 000-54638

WALKER INNOVATION INC.

(Exact name of registrant as specified in its
charter)

Delaware

30-0342273

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer Identification
No.)

Two High Ridge Park, Stamford,
Connecticut

06905

(Address of Principal Executive
Offices)

(Zip Code)

(203) 461-7200

(Registrant's telephone number, including area
code)

(Former name and former address, if changed since
last report)

Indicate by check mark whether the
registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days. Yes x No ¨

Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes x No ¨

Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definitions of "large
accelerated filer", "accelerated filer" and "smaller reporting
company" in Rule 12b-2 of the Exchange Act.

Large accelerated
filer

¨

Accelerated
filer

¨

Non-accelerated
filer

¨

(Do not check if a smaller
reporting company)

Smaller reporting
company

x

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Act): Yes ¨ No x

As of May 9, 2016, there were 20,741,572 shares of
the issuer's common stock outstanding.

The accompanying unaudited notes are an integral
part of these condensed consolidated financial statements.

3

WALKER INNOVATION
INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(dollars in thousands, except per share amounts)

(Unaudited)

Three Months Ended March 31,

2016

2015

Revenues:

Licensing fees

$

500

$

7

Custom innovation - related party

667

--

Subscription revenue

75

5

Total revenues

1,242

12

Cost of Revenue:

Cost of subscription service

199

374

Cost of custom innovation

590

--

Net revenue

453

(362

)

Operating expenses:

Other legal and consulting fees

166

795

Patent prosecution and maintenance fees

52

216

Compensation and benefits

1,236

1,637

Professional fees

258

520

General and administrative

229

466

Restructuring charge

575

--

Total operating expenses

2,516

3,634

Operating net loss

(2,063

)

(3,996

)

Other income

239

--

Interest income

2

6

Net loss

$

(1,822

)

$

(3,990

)

Net loss per common share:

Basic

$

(0.09

)

$

(0.19

)

Diluted

$

(0.09

)

$

(0.19

)

Weighted average common shares outstanding:

Basic

20,742

20,742

Diluted

20,742

20,742

The accompanying unaudited notes are an integral part
of these condensed consolidated financial statements.

4

WALKER INNOVATION
INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

(Unaudited)

Three Months Ended March 31,

2016

2015

Cash Flows from Operating Activities:

Net loss

$

(1,822

)

$

(3,990

)

Adjustments to reconcile net loss to net cash used
in operating activities:

Accelerated amortization related to write off of
Haystack IQ asset

213

--

Stock-based compensation

612

601

Depreciation and amortization

28

8

Changes in operating assets and liabilities:

Decrease (increase) in:

Accounts receivable

813

(30

)

Other receivable

(3

)

3

Prepaid and other current assets

266

(230

)

Increase (decrease) in:

Accounts payable

(102

)

39

Accrued expenses

164

(81

)

Deferred software costs

(63

)

1

Deferred liabilities

(260

)

23

Net cash used in operating activities

(154

)

(3,656

)

Cash Flows from Investing Activities:

Purchase of property and equipment software

--

(103

)

Short-term investment

--

(50

)

Net cash used in investing activities

--

(153

)

Cash Flows from Financing Activities:

--

--

--

Net cash provided by financing activities

--

--

Net change in cash

(154

)

(3,809

)

Cash:

Beginning

$

5,858

$

15,407

Ending

$

5,704

$

11,598

The accompanying unaudited notes are an integral
part of these condensed consolidated financial statements.

5

WALKER INNOVATION
INC. AND SUBSIDIARIES

March 31, 2016

(all amounts in thousands except share and per share
amounts)

(Unaudited)

NOTE 1 - THE COMPANY

Walker Innovation Inc. (formerly known as Patent
Properties, Inc.), a Delaware corporation, collectively, with its
subsidiaries, the "Company" or "Walker Innovation"), has two
distinct lines of businesses. It develops and commercializes its
unique portfolio of intellectual property assets through its
licensing and enforcement operations ("Licensing and Enforcement")
and in early 2015 it launched its innovation business through The
United States Patent Utility™, which evolved into Haystack IQ™
("Haystack IQ"). Haystack IQ uses proprietary Big Data software to
connect the global stockpile of technology improvements and
technical experts, represented by the U.S. patent database and
other technical databases, with businesses that can put them into
commercial uses that help them compete and grow. The Company also
provides custom innovation services to large companies seeking to
prototype and scale new businesses and new business methods.
Haystack IQ and custom innovation services are referred to
collectively as the Company's "Innovation" business. On March 31,
2016, the Company ceased operations of its Haystack IQ product, and
recorded a one-time non-recurring charge of approximately $575.

In response to the challenging developments in the
patent licensing and enforcement environment and the decision to
cease operations of Haystack IQ, the Company's current plan of
operations includes a more focused Licensing and Enforcement
program, custom innovation services and the initiation of an effort
to acquire, through merger, share exchange, asset acquisition, plan
of arrangement, recapitalization, reorganization or similar
business combination, one or more operating businesses, either
within its current verticals or in new industry segments, or
control of such operating businesses through contractual
arrangements.

Walker Digital, LLC ("Walker Digital") a related
party, is the owner of 82% of the voting interest in the Company
and owns approximately 49% of the economic interest in the Company.
Walker Digital was eligible to receive an additional 2,166,667
shares of common stock, subject to meeting certain performance
conditions by February 13, 2016 ("Contingency Shares"). The
performance conditions were not met by that date and the
Contingency Shares were not issued.

Nature of Business

The Company's two primary segments of business, its
Licensing and Enforcement business, and the operations of its
Innovation business, are described below:

Licensing and Enforcement

The Company develops, licenses and otherwise
enforces patented technologies through its wholly owned
subsidiaries. The Company generates revenues from the granting of
intellectual property rights for the use of, or pertaining to, its
patented technologies. The Company also monetizes its
intellectual property through the sale of select patent assets.
Patent protection is a key part of the Company's business model,
because it provides the Company with a period of exclusive
ownership during which the Company has the opportunity to recoup
risk capital and generate a profit from inventions.

Innovation Business

The Company focuses on fostering and creating
systems and tools to help companies innovate more effectively and
efficiently. Currently, the Company accomplishes this two ways -
through its product for small and medium businesses "Haystack IQ"
and through custom innovation projects for large companies. As more
fully described below the Company ceased operations of Haystack IQ
at the end of the first quarter and recorded a one-time
non-recurring charge of $575.

Haystack IQ

Haystack IQ is a
subscription-based service that uses proprietary Big Data software
to connect the global stockpile of technology improvements and
technical experts, represented by the U.S. patent database and
other technical databases to businesses that can help put them into
commercial uses that help them compete and grow. This product
helps companies find complementary external resources
(ideas, people, organizations, materials, technologies, approaches)
in the global "haystack" of R&D investment that can accelerate
improvements to their customer offerings.

Custom Innovation

The Company seeks to provide consulting services and
software development to large companies in connection with
prototyping projects as well as the development of new and
innovative ways to serve their customers and grow their market
share. The Company may be engaged by the customer directly, or work
may be subcontracted to it by its controlling stockholder, a
related party, Walker Digital, LLC.

6

The Company does not allocate
corporate interest income and expense, income taxes, other income
and expenses related to corporate activity or corporate expense for
management and administrative services that benefit both segments.
Because of this unallocated income and expense, the operating loss
of each reporting segment does not reflect the operating loss the
reporting segment would report as a stand-alone
business.

Key financial information by reportable segment for
the three months ended March 31, 2016 and 2015 is as follows:

For the three months ended March
31, 2016:

Litigation and Enforcement

Innovation
(1)

Corporate

Total

Net revenue

$

500

$

(47

)

$

--

$

453

Expenses

(316

)

(838

)

(1,362

)

(2,516

)

Operating Income (Loss)

184

(885

)

(1,362

)

(2,063

)

Other/Interest Income

--

--

241

241

Net Income (Loss)

$

184

$

(885

)

$

(1,121

)

$

(1,822

)

(1) Includes the one time non-recurring
charge of $575 in connection with the closing of Haystack IQ.

For the three months ended March
31, 2015:

Litigation and Enforcement

Innovation

Corporate

Total

Net revenue

$

7

$

(369

)

$

--

$

(362

)

Expenses

(1,080

)

(770

)

(1,784

)

(3,634

)

Operating Loss

(1,073

)

(1,139

)

(1,784

)

(3,996

)

Other/Interest Income

--

--

6

6

Net Loss

$

(1,073

)

$

(1,139

)

$

(1,778

)

$

(3,990

)

Capital expenditures for the three months ended
March 31, 2016 and 2015 was $0 and $103, respectively, and was
spent in connection with the Haystack IQ Web Site.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

Use of Estimates

The preparation of consolidated financial statements
in conformity with accounting principles generally accepted in the
United States of America requires management of the Company to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements.
Actual results could differ from these estimates. The Company's
significant estimates and assumptions include stock-based
compensation and the valuation allowance related to the Company's
deferred tax assets, revenue recognition and useful life of
assets. Certain of the Company's estimates could be
affected by external conditions, including those unique to the
Company and general economic conditions. It is reasonably possible
that these external factors could have an effect on the Company's
estimates and could cause actual results to differ from those
estimates and assumptions.

Cash and Cash Equivalents

The Company maintains its cash in bank deposit and
money market accounts that, at times, may exceed federally insured
limits. The Company considers money market accounts that have
maturity dates of three months or less from the purchase date to be
cash equivalents.

Short Term Investments

The Company classifies its investment consisting of
a certificate of deposit with a maturity greater than three months
but less than one year as a short-term investment.

Earnings (Loss) per Share

Basic earnings (loss) per share ("EPS") is computed
by dividing net income applicable to common stock by the
weighted-average number of common shares outstanding, less any
unvested restricted stock outstanding. Under the treasury stock
method, diluted EPS reflects the potential dilution that could
occur if securities or other instruments that are convertible into
common stock were exercised or could result in the issuance of
common stock. As of March 31, 2016 and 2015, the following
financial instruments were not included in the diluted loss per
share calculation because their effect was anti-dilutive:

7

2016

2015

Common Stock options

5,048,166

3,858,000

Common Stock warrants

1,980,318

1,980,318

Preferred Stock

14,999,000

14,999,000

Contingency shares

--

2,166,667

Excluded potentially dilutive securities

22,027,484

23,003,985

Revenue Recognition

Licensing and Enforcement

The Company derives its revenue from patent
licensing and enforcement. In general, these revenue arrangements
provide for the payment of contractually determined fees in
consideration for the grant of certain intellectual property rights
for patented technologies owned or controlled by the Company. A
significant number of the patent licenses are granted on the entire
portfolio rather than individual patents. Most of the intellectual
property rights granted are perpetual in nature, extending until
the expiration of the related patents, although they can be granted
for a defined, relatively short period of time. The Company
recognizes licensing and enforcement fees when there is persuasive
evidence of a licensing arrangement, fees are fixed or
determinable, delivery has occurred and collectability is
reasonably assured.

Haystack IQ

The Company's revenues are
derived from month-to-month subscriptions to services, some
of which may be billed annually in advance.
Subscription revenue is earned each month as the service is
rendered to subscribers on a monthly basis. The Company recognizes
revenue when the subscribers use Haystack IQ's services, the
service has been rendered and earned during the month, the amount
of the subscription is fixed or determinable based on established
rates quoted on an annualized basis and collectability is
reasonably assured. In general, subscriptions are contracted for a
year and subscribers are entitled to refunds on a pro-rata
basis. On March 31, 2016, the Company ceased operations of
its Haystack IQ product, and recorded a one-time non-recurring
charge of approximately $575.

Custom Innovation

Revenue is recognized as services are performed
using the percentage of completion method. Revenue is recognized as
services are performed using the percentage of completion method
for fixed price contracts. Revenues for the current period are
determined by multiplying the estimated margin at completion for
each contract by the project's percentage of completion to date,
adding costs incurred to date, and subtracting revenues recognized
in prior periods. In applying the percentage-of-completion method
to these contracts, the Company measures the extent of progress
toward completion as the ratio of costs incurred to date over total
estimated costs at completion. As work is performed under
contracts, estimates of the costs to complete are regularly
reviewed and updated. As changes in estimates of total costs at
completion on projects are identified, appropriate earnings
adjustments are recorded using the cumulative catch-up method.
Provisions for estimated losses on uncompleted contracts are
recorded during the period in which such losses become evident.
Profit incentives and/or award fees are recorded as revenues when
the amounts are both probable and reasonably estimable.

Costs Associated with Revenue

Licensing and Enforcement

Contingent legal and consulting fees are expensed in
the Condensed Consolidated Statements of Operations in the period
that the related revenues are recognized. In instances where there
are no recoveries from potential infringers, no contingent legal
and consulting fees are required to be paid; however, the Company
may be liable for certain out of pocket legal and consulting costs
incurred pursuant to the underlying legal and consulting services
agreement. Legal fees advanced by contingent law firms, if any,
that are required to be paid in the event that no license
recoveries are obtained are expensed as incurred and included in
liabilities in the accompanying Condensed Consolidated Balance
Sheets.

8

Haystack IQ

Cost of services is comprised of
compensation for Company employees within the software and systems
engineering groups in addition to data costs and amortization
expenses. The expenses related to our hosted software applications
are affected by the number of customers who subscribe to our
products and the complexity and redundancy of our software
applications and hosting infrastructure. The Company expenses these
costs as they are incurred. On March 31, 2016, the Company
ceased operations of its Haystack IQ product, and recorded a
one-time non-recurring charge of approximately $575.

Custom Innovation

Costs represent the staff and related other costs
associated with any of the services provided.

Fair Value Measurements

The carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses and
other current liabilities, approximate fair value due to the
short-term nature of these instruments.

Fair value is defined as an exit price, representing
the amount that would be received upon the sale of an asset or
payment to transfer a liability in an orderly transaction between
market participants. Fair value is a market-based measurement that
is determined based on assumptions that market participants would
use in pricing an asset or liability. A three-tier fair value
hierarchy is used to prioritize the inputs in measuring fair value
as follows:

Level 2. Quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not active, or
other inputs that are observable, either directly or
indirectly.

These valuation techniques involve some level of
management estimation and judgment, the degree of which is
dependent on the price transparency of the asset, liability or
market and the nature of the asset or liability.

Investment

In cases where the Company's investment is less than
20% of the outstanding voting stock and significant influence does
not exist, the investment is carried at cost, and evaluated for
impairment at each reporting period.

The Company elected the fair value option for its
investment in Upside Commerce Group, LLC, formerly known as
Flexible Travel Company, LLC ("Upside"). As of March 31, 2016 and
December 31, 2015, the fair value of this investment is
approximately $672 (see Note 5).

While the Company believes its valuation methods
are appropriate and consistent with other market participants, the
use of different methodologies or assumptions to determine the fair
value of certain financial instruments could result in a different
estimate of fair value at the reporting date.

The decision to elect the fair
value option, which is irrevocable once elected, is determined on
an instrument by instrument basis and applied to an entire
instrument. The net gains or losses, if any, on an investment for
which the fair value option has been elected, are recognized as a
change in fair value of investments in the Condensed
Consolidated Statements of
Operations.

Revenue Concentrations

The Company considers significant revenue
concentrations to be counterparties or significant customers who
account for 10% or more of the total revenues generated by the
Company during the period. For the three months ended March 31,
2016, 94% of the Company's revenue was derived from two
counterparties, of which 54% was revenue from Walker Digital in
connection with custom innovation subcontracted to the Company.

Stock Based Compensation

The Company measures the cost of services received
in exchange for an award of equity instruments based on the fair
value of the award. For employees and directors, the fair value of
the award is measured on the grant date and for non-employees, the
fair value of the award is generally measured on the measurement
date and re-measured on each financial reporting date and vesting
date until the service period is complete. The fair value amount is
then recognized over the period services are required to be
provided in exchange for the award, usually the vesting period. The
Company recognizes employee stock-based compensation expense on a
straight line basis over the requisite service period for each
separately vesting tranche of each award. Stock-based compensation
expense is reflected within operating expenses in the Condensed
Consolidated Statements of Operations.

Website Development costs

Website development costs were expensed as incurred
prior to technological feasibility. Post launch, all costs incurred
by the Company related to the development phase, including costs
incurred for enhancements that are expected to result in additional
new functionality, are capitalized. Such costs are amortized on a
straight-line basis over 36 months. All costs related to the
planning and post-implementation phase, including training and
maintenance, are expensed as incurred. Capitalized costs related to
improvements and enhancements to the functionality of Haystack IQ
were previously included in property and equipment, net in the
Company's Condensed Consolidated Balance Sheets, but in connection
with the shut down of Haystack IQ have been fully expensed.

Property and Equipment, net

Property and equipment consist primarily of computer
and network hardware and are stated at cost net of accumulated
depreciation and amortization expenses. Leasehold improvements are
amortized over the shorter of their estimated useful lives or the
remaining term of the lease. Lease amortization is included in
depreciation expense. Equipment and software are depreciated on a
straight-line basis over two to five years. Costs related to
maintenance and repairs are expensed as incurred.

9

Deferred Revenue

Deferred revenue represents prepaid subscription
revenue for future periods from subscribers in connection with
Haystack IQ as well as amounts to be recognized in connection with
the amortization of the Upside Warrant (as defined below). All
amounts due to customers in connection with the ceasing of Haystack
IQ operations have been reclassified and are included in Account
payable in the accompanying Condensed Consolidated Balance
Sheet.

Costs and Estimated Earnings in Excess of Billings
on Uncompleted Contracts and Billings in Excess of Costs and
Estimated Earnings on Uncompleted Contracts

Unbilled revenues on contracts in progress in the
accompanying Condensed Consolidated Balance Sheets represent
unbilled amounts earned and reimbursable under Custom innovation
contracts in progress. These amounts become billable according to
the contract terms, which consider the passage of time, achievement
of certain milestones or completion of the project.

Billings in excess of costs and estimated earnings
on contracts in progress in the accompanying Consolidated Balance
Sheets represent accumulated billings to our Custom innovation
business in excess of the amount earned. The Company anticipates
that the majority of such amounts will be earned as
revenue within one year.

Billings in excess of cost represents revenue to be
recorded in connection with our Custom innovation business.

Income Taxes

Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, and
operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in operations in the period that includes the enactment
date. A valuation allowance is provided when it is more likely than
not that some portion or all of a deferred tax asset will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income and the
reversal of deferred tax liabilities during the period in which
related temporary differences become deductible. The benefit of tax
positions taken or expected to be taken in the Company's income tax
returns are recognized in the consolidated financial statements if
such positions are more likely than not of being sustained.

Recently Issued Accounting Pronouncements

On March 17, 2016 the Financial
Accounting Standards Board ("FASB") issued Accounting Standards
Update ("ASU") 2016-08 that amends the guidance for Principle
versus Agent Considerations (Reporting Revenue Gross versus
Net) in ASC 2014-09, Revenue from Contracts with
Customers (Topic 606), issued in May 2014. The ASU
clarifies that the principal or agent determination is based on
whether the entity controls the goods or services before they are
transferred to its customer.Public
entities must apply ASU 2014-09 to annual reporting periods
beginning after December 15, 2017, including interim reporting
periods within that reporting period. Nonpublic entities will be
required to adopt the amendments for annual reporting periods
beginning after December 15, 2018, and interim periods within
annual reporting periods beginning after December 15, 2019. Earlier
application is permitted for both types of entities only as of
annual reporting periods beginning after December 15, 2016,
including interim reporting periods within that reporting period.
Early adoption prior to that date is not permitted. The Company is
evaluating the effect that ASU 2016-08 will have on its
results of operations, financial position or cash flows.

In March 2016, the FASB issued ASU No. 2016-09
("ASU 2016-09"), "Compensation-Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting." ASU
2016-09 will affect all entities that issue share-based
payment awards to their employees and is effective for annual
periods beginning after December 15, 2016 for public
entities. The areas for simplification in ASU 2016-09 involve
several aspects of the accounting for share-based payment
transactions, including the income tax consequences, classification
of awards as either equity or liabilities, and classification on
the statement of cash flows. The Company is currently evaluating
the effect that ASU 2016-09 will have on the Company's financial
position and results of operations.

NOTE 3 - PREPAID EXPENSES AND OTHER CURRENT
ASSETS

As of March 31, 2016 and December 31, 2015 prepaid
expenses and other current assets consist of the following:

2016

2015

(Unaudited)

Prepaid insurance

$

75

$

84

Prepaid patent costs

23

22

Due from Walker Digital and Upside

188

201

Prepaid software

--

273

Other prepaid expenses

82

54

Total prepaid expenses and other current
assets

$

368

$

634

10

NOTE 4 - PROPERTY AND EQUIPMENT

As of March 31, 2016 and December 31, 2015 property
and equipment, net, consist of the following:

2016

2015

Computer equipment and software

$

340

$

337

Less: Accumulated Depreciation (1)

(324

)

(81

)

Total property and equipment, net

$

16

$

256

(1)

Includes $213 of accelerated depreciation recorded
in connection with the Haystack IQ restructuring change.

Depreciation expense for the three months ended
March 31, 2016 and the full year ended December 31, 2015 was $3 and
$10 respectively.

NOTE 5 - INVESTMENTS

Investment in Tagged

The Company received 57,000 shares of common stock
in Tagged, Inc. ("Tagged") as partial payment in connection with a
license agreement. If on liquidation date (i.e. public offering or
change of control), the grant value of the stock is less than $250
("grant value" or "floor value"), Tagged will pay the Company the
difference between the $250 floor value and the grant value. The
investment is carried at cost.

Investment in Upside Commerce Group, LLC

The Company entered into a Shared Services
Agreement (the "Upside Services Agreement", formerly the "FTC
Services Agreement") dated as of December 4, 2015, with
Upside Commerce Group, LLC, a company
affiliated with Walker Digital, the Company's controlling
stockholder, regarding the provision of executive management,
marketing, legal and financial consulting services. There are no
set deliverables contemplated by the Upside Services Agreement,
although the hourly rates the Company expects to charge Upside
(approximately equal to the Company's cost) are specified and under
certain circumstances could require audit committee approval.

In connection with the Upside Services Agreement,
the Company was granted a warrant to purchase limited liability
company interests in Upside at an exercise price of $0.06 per Class
A common share, (the "Upside Warrant") which amount has been
determined to equal the fair market value of such shares as of the
date of issuance of the Upside Warrant. The Upside Warrant was
issued to the Company by Jay Walker, who currently beneficially
owns approximately 44% of the aggregate outstanding limited
liability company interests of Upside on a fully diluted basis. The
total Class A common shares that may be purchased pursuant to the
exercise of the Upside Warrant is 16,400,000, equal to
approximately 16% of the current aggregate outstanding limited
liability company interests of Upside on a fully diluted basis and
the transfer of such shares to the Company is subject to certain
requirements, including the provision of an opinion of counsel that
such would not result in Upside being deemed to be a publicly
traded partnership for purposes of U.S. federal income tax law.

The fair value of the Upside Warrant (at December 4, 2015
(inception) and as of December 31, 2015 and March 31, 2016) was
determined using the Black-Scholes model with the following
assumptions: risk free interest rate
- 1.52%, stock volatility - 83.1%, expected term - 5
years, expected dividends - N/A. The underlying stock price of
the Upside Warrant was estimated to be $0.06 per share based on the
company's fundraising activity and the Option Pricing Method
Backsolve in accordance with the guidelines outlined in the
American Institute of Certified Public Accountants
Practice Aid, Valuation of Privately-Held-Company Equity
Securities Issues as Compensation. The valuation of the
underlying shares included the following assumptions: risk-free
rate - 1.52%, company volatility - 50%, expected term or time
to maturity - 5 years. In connection with the issuance of this
Upside Warrant, the Company recorded deferred revenue of $672 as of
December 31, 2015 and has amortized $83 of this deferred revenue
into other income during the three months ended March 31, 2016.

NOTE 6 - SHARED SERVICES AGREEMENT

Walker Digital

The Company has a Shared Services Agreement ("WDM
Shared Services Agreement") with Walker Digital Management
("WDM"). The cost of such services varies monthly based on the
terms of the WDM Shared Services Agreement. The incurred expenses
include but are not limited to executive compensation, information
technology services and supplies, administrative and general
services and supplies and rent and utilities, are based either on
specific attribution of those expenses or, where necessary and
appropriate, based on the Company's best estimate of an appropriate
proportional allocation.

11

The following table represents operating expenses
contributed by WDM on behalf of the Company and expenses incurred
under the WDM Shared Services Agreement for the three months ended
March 31, 2016 and 2015:

Three Months Ended

March 31,

2016

2015

Operating Expenses:

Compensation expenses
(1)

$

(11

)

$

31

Rent and utilities

62

62

Office services and supplies

9

12

Telephone

11

7

Other

18

15

Total Operating Expenses

$

89

$

127

(1)

Compensation expenses are net of services charged
to WDM. During the three months ended March 31, 2016, and 2015, the
Company charged approximately $13 and $6 of expenses, respectively,
related to such services.

As of March 31, 2016 and December 31, 2015, due from
WDM included in prepaid and other current assets on the condensed
consolidated balance sheets was $131 and $208, respectively, and
due to WDM included in accounts payable/accrued expenses on the
condensed balance sheet was $101 and $84, respectively.

Upside Commerce Group, LLC

In December 2015, the Company entered into the
Upside Services Agreement with Upside to provide executive
management, marketing, legal and financial consulting services. For
the three months ended March 31, 2016 the Company provided
approximately $156 of expenses related to such services and these
amounts are included in Other Income on the Condensed Consolidated
Statement of Operations and had $62 included in prepaid and other
current assets.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

Litigation

The Company is subject to claims, counterclaims and
legal actions that arise in the ordinary course of
business. The plaintiff in each patent suit
may have defenses to any counterclaim. In addition, the
defendants in certain of the patent suits may file motions seeking
costs and fees against the plaintiff, which may be opposed. The
Company may also be subject to legal actions arising from claims
against Walker Digital related to certain patent families the
Company received by recorded assignment from Walker Digital.
Management believes that the ultimate liability with
respect to these claims and legal actions, if any, will not have a
material effect on the Company's financial position, results of
operations or cash flows. The Company recognizes a liability
for a contingency when it is probable that liability has been
incurred and when the amount of loss can be reasonably estimated.
When a range of probable loss can be estimated, the Company accrues
the most likely amount of such loss, at no less than the minimum of
the range. As of March 31, 2016 and December 31, 2015, the
litigation accrual was not material.

Accrued Bonuses

As of March 31, 2016 and December 31, 2015, accrued
bonuses were $25 and $81, respectively. Most accrued bonuses are
discretionary in nature, although some are based on specific
performance goals. These amounts are included in accrued expenses
on the condensed consolidated balance sheets.

NOTE 8 - EQUITY

As of March 31, 2016, the Company had authorized an
aggregate of 100,000,000 shares of common stock, par value $0.001
per share. The Company, had authorized an aggregate of 15,000,000
shares of preferred stock, par value $0.001 per share, 14,999,000
shares of which have been designated Series B Convertible Preferred
Stock. As of March 31, 2016, there were 21,134,744 shares of the
Company's common stock issued and 20,741,572 outstanding. As of
March 31, 2016, 14,999,000 shares of the Company's Series B
Convertible Preferred Stock were issued and outstanding.

12

NOTE 9 - STOCK-BASED COMPENSATION

Total stock-based compensation to employees and
non-employees for the three months ended March 31, 2016 and 2015,
respectively, is presented in the following table:

Three Months Ended

March 31,

2016

2015

Employee option awards

$

571

$

587

Non employee compensation expenses

41

14

Total compensation expense

$

612

$

601

Stock-based Compensation

During the first quarter of 2016 the Company granted
options to employees for the purchase of 850,000 shares of its
Common Stock under the Incentive Plan to employees of the Company.
These options have an aggregate grant date fair value of
approximately $120 utilizing the Black-Scholes option pricing model
with the following assumptions used:

Exercise Price

$0.36

Term

6.0 years

Remaining Contractual
Life

9.9 years

Volatility

91.12%

Dividends

0%

Risk Free Rate of
Interest

1.5%

Vesting:

April 2016 - March
2019

The Company used historical volatility rates used to
calculate the fair value of options granted during the three months
ended March 31, 2016.

A summary of the status of the Company's stock
option plans and the changes during the three months ended March
31, 2016, is presented in the table below:

Number of Shares

Weighted Average Exercise Price

Intrinsic Value

Weighted Average Remaining Contractual
Life (in years)

Outstanding at December 31, 2015

4,263,166

$

3.01

-

7.3

Options Granted

850,000

$

0.36

-

Options Exercised

-

Options Cancelled/Forfeited

(65,000

)

$

2.90

Outstanding at March 31, 2016

5,048,166

$

2.56

14

8.2

Options vested and exercisable

2,355,157

$

3.37

-

7.3

As of March 31, 2016, the Company had unrecognized
stock-based compensation expense related to all unvested stock
options of $1.7 million, which is expected to be recognized over
the remaining weighted-average vesting period of 1.0 year.

NOTE 10 - SOFTWARE AGREEMENT

On May 8, 2014, the Company entered into a Software
as Service Agreement (the "Agreement") with Innography, Inc.
("Innography") under which the Company has access to Innography's
proprietary web-based application software platforms and patent
related data and analytics functionality in connection with the
development and commercialization of Haystack IQ. On April 1, 2016
the Company provided notice to Innography of its intent not to
renew the agreement, which expires on May 8, 2016. The Company has
expensed $63 that had been included in Prepaid assets in its
Condensed Consolidated Balance Sheet at March 31, 2016.

13

NOTE 11 - CUSTOM INNOVATION CONSULTING - RELATED
PARTY

On August 20, 2015, the Company entered into an
Engagement Agreement (the "Engagement Agreement") with Walker
Digital, regarding the provision of software development and
consulting services. The initial work order received by the Company
under the Engagement Agreement is with respect to a prototype
project involving a Fortune 500 insurance company that previously
retained Walker Digital to design and prototype innovative business
models. Payments totaling $2.0 million were paid to the Company
through March 31, 2016. The Company is recognizing service revenues
under this contract on a percentage of completion basis, as
prototyping services are provided. Although management believes it
has established adequate procedures for estimating costs to
complete on open contracts, it is at least reasonably possible that
additional significant costs could occur on contracts prior to
completion. The Company periodically evaluates and revises its
estimates and makes adjustments when they are considered
necessary.

The Costs and Estimated Earnings on Uncompleted
Contracts is summarized as follows:

March 31, 2016

Costs incurred on uncompleted contracts

$

976

Estimated earnings

130

Revenue recognized

1,106

Less billings to date

(2,000

)

Billings in excess of cost

$

894

NOTE 12 - RESTRUCTURING CHARGE

On March 31, 2016 as part of its effort to reduce
costs and focus its business development efforts, the Company
ceased operations of its Haystack IQ product.

The following summarizes the components of the one
time non recurring restructuring charge for the three months ended
March 31, 2016:

March 31,

2016

Severance and other employee costs

$

172

Write off of prepaid expenses

69

Accelerated depreciation

213

Other costs, including obligations for leases,
legal and allowance for doubtful accounts

121

Total restructuring charge

$

575

Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

The following discussion and analysis of the
financial condition and results of our operations should be read in
conjunction with our financial statements and the notes to those
statements. This discussion contains forward-looking statements
reflecting our management's current expectations that involve risks
and uncertainties. Actual results and the timing of events may
differ materially from those contained in these forward-looking
statements due to a number of factors, including those discussed
under the heading "Risk Factors" in our Annual Report on Form 10-K
filed with the Securities and Exchange Commission ("SEC") on March
15, 2016.

Narrative discussions of dollar figures are in
thousands, except per share data and where the context indicates
otherwise.

General

Through our wholly-owned subsidiaries, we create,
commercialize, license and, when necessary, legally enforce our
homegrown portfolio of business innovations, which we acquired from
our affiliate Walker Digital. We also make our internal capacity
for innovation available on a custom basis to help third-party
companies compete and grow. These activities are conducted
primarily through three areas of focus:

•

We seek to commercialize our unique portfolio of
intellectual property assets through our licensing and enforcement
operations ("Licensing and Enforcement");

•

Our Haystack IQ™ service ("Haystack IQ")
introduced in 2015, is a subscription-based service that uses
proprietary Big Data software to connect the global stockpile of
technology improvements and technical experts, represented by the
U.S. patent database and other non-patent technical literature,
with businesses that can put them into commercial use. On March 31,
2016, the Company ceased operations of its Haystack IQ product;
and

14

•

We are available to large corporations that need
custom innovation services to create, prototype and commercialize
new businesses and new business methods that improve corporate
performance.

In response to the challenging developments in the
patent licensing and enforcement environment and the decision to
cease operations of Haystack IQ, our current plan of operations
includes a more focused Licensing and Enforcement program, custom
innovation services and the initiation of an effort to acquire,
through merger, share exchange, asset acquisition, plan of
arrangement, recapitalization, reorganization or similar business
combination, one or more operating businesses, either within our
current verticals or in new industry segments, or control of such
operating businesses through contractual arrangements.

The Company is led by entrepreneur and inventor Jay
Walker, who is best known as the founder of Priceline.com and has
twice been named by TIME magazine as "one of the top 50 business
leaders of the digital age." Mr. Walker currently ranks as the
world's 11th most patented living individual, based on U.S. patent
issuances according to Wikipedia.

All of our intellectual property assets were created
in-house by us or our affiliate, with the goal of solving business
problems and achieving commercial return. However, it is our belief
that many of our inventions have become part of the commercial
activities of other businesses without having been licensed,
depriving us of financial value. Our Licensing and Enforcement
segment is currently pursuing one matter in the US District Court
in Delaware regarding our inventions. The Company is also engaged
in an arbitration relating to its intellectual property assets
against a third party described below. We may expand our
enforcement activities to other patents in our portfolio and other
unlicensed users of those patents that have previously been
asserted in litigation, although the timing and extent of these
activities depends upon many factors affecting the patent
enforcement industry that are beyond our control.

We believe the market for services that help
companies identify complementary knowledge, expertise and resources
outside the firm to speed internal problem solving and reduce time
to market is both large and in need of new tools and new thinking.
We have developed a way to unlock the huge capacity for problem
solving currently hidden inside the U.S. patent database and, other
technical literature. Haystack IQ was launched to meet this market
need and uses Big Data software tools to make the innovations and
innovators contained in America's patent database available to
companies of all sizes. The market for business intelligence is
characterized by great information asymmetry that makes mining the
technical know how inside the patent database and other technical
databases with human experts cost prohibitive for most companies
and limited in its impact. Haystack IQ launched in August 2015 and,
while we have seen growth in subscriber volumes we lack the capital
necessary to scale the business. Given our focus on conserving
capital, we decided to cease operations at the end of the first
quarter and recorded a one-time non-recurring charge of $575.

In 2013, we acquired ownership of
the intellectual property assets that were primary to Walker
Digital's licensing's business, subject to certain enumerated cases
and orders, judgments, decisions or other actions taken in
connection with any patent litigation or by the USPTO. In this
regard, the Company is involved in a legal action arising from
claims related to certain patent families we received from Walker
Digital by recorded assignment due to an adverse judicial decision
relating to interpretation of the terms of a settlement agreement
entered into by Walker Digital with a third party prior to the
assignment. Although the decision does not specifically address our
patents, theCompany has been notified by
the third party and its assignee that they believe the court's
decision supports the third party's claim that a
large number of patents, including the patents assigned to the
Company by Walker Digital, had been conveyed to them by
assignment under the settlement agreement. The third
party has also indicated it may seek damages against the Company
arising from that same set of facts.Walker
Digital and the Company commenced an arbitration on March 31, 2015
against the third party seeking reformation of the settlement
agreement between the third party and Walker Digital. In the
alternative, Walker Digital and the Company are seeking in the
arbitration a declaratory judgment as to which particular patents
had been assigned to the third party. In the arbitration the third
party is seeking a declaratory judgment that it is the
owner (as a result of the settlement agreement) of a
substantial number of the Company's patents, as well as patents
from Walker Digital. None of the patents sought by the third
party in arbitration are currently being enforced in the Company's
licensing and enforcement litigation. On November 30, 2015,
the parties agreed to stay the arbitration. The stay, which has
been amended, will expire upon ten business days notice by either
party. The hearing in the case was originally scheduled for early
March 2016. If the stay expires without resolution of the
arbitration, the hearing will be rescheduled to a later date. The
Company and Walker Digital have entered into a tolling agreement
with respect to claims the Company may have against Walker Digital
in the event the Company is required to assign to the third party
certain of the patents assigned to the Company by Walker
Digitalor if the Company is required to
pay any damages to the third party. The Company is unable to
determine the ultimate liability, if any, with respect to the
matter described above, but believes it will not have a material
effect on the Company's financial position, results of operations
or cash flows.

All improvements to the intellectual property assets
that were primary to Walker Digital's licensing's business,
together with any of the intellectual property associated with
Haystack IQ, have been assigned to our subsidiary Inventor
Holdings, LLC pursuant to an Invention Assignment Agreement with
Mr. Walker. While the terms of the Invention Assignment Agreement
do not entitle us to any other intellectual property Mr. Walker may
develop in the future, in view of his significant equity position
in the Company and the Company's platform for the protection of the
intellectual property it holds, Mr. Walker may nevertheless
determine to develop and commercialize intellectual property
through the Company. The terms and conditions of any such
transaction would be negotiated between Mr. Walker and our Audit
Committee at the time of such determination.

15

Overview

Our operating activities during fiscal 2015 and
through the first quarter of 2016 were principally focused on the
launch and analysis of initial market reception of Haystack IQ™,
with a reduced emphasis on the development, licensing and
enforcement of our patent portfolios due to several factors
adversely affecting the patent environment.. Our Licensing and
Enforcement revenues historically have fluctuated period to period,
and can vary significantly, based on a number of factors including
the following:

•

the dollar amount of agreements executed each
period, which can be driven by the nature and characteristics of
the technology or technologies being licensed and the magnitude of
infringement associated with a specific licensee;

•

the specific terms and conditions of agreements
executed each period including the nature and characteristics of
rights granted, and the periods of infringement or term of use
contemplated by the respective payments;

•

fluctuations in the total number of agreements
executed each period;

•

the timing, results and uncertainties associated
with patent filings and other enforcement proceedings relating to
our intellectual property rights;

•

the relative maturity of licensing programs during
the applicable periods; and

•

other external factors, including developments in
the law affecting patent enforcement.

Counterparties refer to those parties who were
defendants in patent infringement cases that had been brought by
us. Certain of these cases have been settled by entering into
patent sale agreements, which typically results in one-time
payments to us that are recognized as revenue. All of the other
revenue was generated through settlement and non-exclusive license
agreements. All of the agreements provide for a one-time payment to
the Company. Generally we are willing to engage in settlement
discussions with defendants at any appropriate time during the
course of litigation. We will agree to settle a dispute with a
defendant when we believe that such a settlement and the terms of
the agreement are in the best interest of the Company and its
shareholders. The environment for entering into such patent sale
agreements or license agreements has been adversely affected by
several significant developments in the intellectual property
industry, including the continued effect of the Leahy-Smith America
Invents Act of 2011 (including several new means by which
challenges of our patents may be effected, including inter partes
review proceedings) and the Supreme Court holding in the Alice
Corp. v. CLS Bank International case, which called into question
the patentability of computer software. In view of these trends
(including our inability to enforce any patents that are the
subject of inter partes review), we are anticipating that the
revenue from Licensing and Enforcement will continue to be below
historic levels.

We had initially planned to fund our investment in
sales, marketing, product development and infrastructure for
Haystack IQ with the operating cash flows of our Licensing and
Enforcement activities. In view of the negative
trends in the patent licensing industry discussed above and the
potential adverse impact of those changes on our revenues, we were
forced to decrease our investment in Haystack IQ. Without the
necessary capital to bring the business to scale, we subsequently
decided to cease the operations of Haystack IQ entirely on March
31, 2016.

In December 2015, the Company entered into the
Upside Services Agreement with Upside Commerce Group, LLC, a
company affiliated with Walker Digital, the Company's controlling
stockholder, regarding the provision of executive management,
marketing, legal and financial consulting services. There are no
set deliverables contemplated by the Upside Services Agreement,
although the hourly rates the Company expects to charge Upside
(approximately equal to the Company's cost) are specified.

In connection with the Upside Services Agreement,
the Company was granted the Upside Warrant to purchase limited
liability company interests in Upside at an exercise price of $0.06
per Class A common share, which amount has been determined to equal
the fair market value of such shares as of the date of issuance of
the Upside Warrant. The Upside Warrant was issued to the Company by
Jay Walker, who currently beneficially owns approximately 44% of
the aggregate outstanding limited liability company interests of
Upside on a fully diluted basis. The total Class A common shares
that may be purchased pursuant to the exercise of the Upside
Warrant is 16,400,000, equal to approximately 16% of the current
aggregate outstanding limited liability company interests of
Upside, on a fully diluted basis, and the transfer of such shares
to the Company is subject to certain requirements, including the
provision of an opinion of counsel that such would not result in
Upside being deemed to be a publicly traded partnership for
purposes of U.S. federal income tax law.

16

The fair value of the
Upside Warrant was determined using the
Black-Scholes model and in connection with the issuance of
the Upside Warrant, the Company recorded
deferred revenue of $672 as of December 31, 2015 and has amortized
$83 of this deferred revenue into other income during the three
months ended March 31, 2016.

Results of Operations

For the Three Months Ended March 31, 2016 Compared
with Three Months Ended March 31, 2015

Net Income (Loss)

Net loss for the three months ended March 31, 2016
was $1,822 compared to net loss of $3,990 for the three months
ended March 31, 2015.

Operating expenses of $2,516 for the quarter ended
March 31, 2016 included other legal and consulting fees of $166,
patent prosecution and maintenance fees of $52, compensation and
related benefits (including non-cash compensation) of $1,236,
professional fees of $258, general and administrative expense of
$229 and included a one time non-recurring restructuring charge of
$575 in connection with the closing of the operations of Haystack
IQ in March 2016. Net revenue totaled $453 for the quarter ended
March 31, 2016.

Operating expenses of $3,634 for the quarter ended
March 31, 2015 included other legal and consulting fees of $795,
patent prosecution and maintenance fees of $216, compensation and
related benefits (including non-cash compensation) of $1,637,
professional fees of $520, and general and administrative expense
of $466, including marketing expenses of $143. Net revenue totaled
($362) for the quarter ended March 31, 2015.

Revenues

Three Months Ended

March 31, 2016

March 31, 2015

% Change

Subscription revenue

$

75

$

5

1400

%

Licensing revenue

500

7

7000

%

Custom innovation - related party

667

--

N/A

Total revenue

$

1,242

$

12

10300

%

For the three months ended March 31, 2016, we
recognized $1.2 million of revenue, a 10300% increase compared to
revenues of $12 for the same period in 2015.

We generated revenue of $500 from one licensing
agreement compared to $7 from one royalty agreement, in the first
quarter of 2015. Our revenues historically have fluctuated based on
the number of patented technology portfolios, the timing and
results of patent filings and our enforcement proceedings relating
to our intellectual property rights.

During the first quarter of 2016 we averaged 20
subscriptions in queue related to Haystack IQ prior to its closing
and we recognized approximately $75 in revenue. We recorded $667 in
revenue from the Custom Innovation work based on the percentage of
completion. The predecessor to Haystack IQ was not launched until
early 2015, and the Custom Innovation contract was signed in 2015.
Accordingly, for the three months ended March 31, 2015 there was $5
of subscription revenue and no revenue from Custom Innovation
revenue was recognized.

Cost of Revenue

Legal and Consulting Contingency Fees

Legal and consulting contingent fees for the three
months ended March 31, 2016 and 2015 were $0, for both periods,
respectively. Our legal and consulting contingent fees are
dependent upon the realization of revenue and vary based on the mix
of cases using contingent firms compared to hourly firms. The case
settled during the first quarter of 2016 had no contingency fees
associated with it.

Cost of Subscription Revenue

Cost of subscription revenue is comprised of
compensation for Company employees within the software and systems
engineering groups in addition to data costs and amortization
expenses. For the three months ended March 31, 2016 and 2015 this
amount totaled $199 and $374, respectively, This amount is
disproportionate to the revenue as the Company had not achieved
scale at which it could amortize its technology costs.

Cost of Custom Innovation Work

Costs of custom innovation work represent the staff
and related other costs associated with any of the services
provided. For the first quarter of 2016 this amount totaled
$590.

17

Licensing and Enforcement Expenses

Three Months Ended

March 31, 2016

March 31, 2015

% Change

Other legal and consulting fees

$

166

$

795

(79

)%

Patent prosecution and maintenance costs

52

216

(76

)%

Total licensing and enforcement expenses

$

218

$

1,011

(78

)%

Other legal and consulting expenses for the three
months ended March 31, 2016 and 2015 were $166 and $795,
respectively. The decrease in other legal and consulting fees
during the first quarter of 2016 as compared to the first quarter
of 2015 was mainly attributable to the mix of our contingent and
hourly legal fees related to our existing active cases. Other
legal and consulting expenses fluctuate from period to period based
on patent enforcement and prosecution activity associated with
ongoing licensing and enforcement programs and the timing of the
commencement of new licensing and enforcement programs in each
period. We expect other legal and consulting expenses to
continue to fluctuate period to period based on the factors
summarized above, in connection with scheduled trial dates and our
current and future patent development, licensing and enforcement
activities.

Patent prosecution and maintenance expenses for the
first quarter of 2016 decreased to $52 from $216 in first quarter
2015. Patent prosecution and maintenance expenses are related to
legal fee and Patent Trademark Office expenses for reexaminations
and patent prosecutions.

General and Administrative
Expenses

Three Months Ended

March 31, 2016

March 31, 2015

% Change

Compensation and benefits

$

1,236

$

1,637

(24

)%

Professional fees

258

520

(50

)%

General and administrative

229

466

(51

)%

Total general & administrative expenses

$

1,723

$

2,623

(34

)%

Compensation and benefits expense decreased by 24%
for the three months ended March 31, 2016 to $1,236 from $1,637 for
the three months ended March 31, 2015 and includes share based
compensation of $514 and $587 for the first quarter ended March 31,
2016 and 2015, respectively. Included in other income is $163
of income that we received from Upside in connection with services
that we provided to them. When offset against against compensation
and benefits expense, the amount decreased by 34%. The decrease in
compensation and benefits is related to an overall decrease in
headcount from 23 in 2015 to 17 in 2016 (included in the 17 are 7
employees that were terminated subsequently in connection with the
ceasing of operations of Haystack IQ).

Professional fees for the first quarter of 2016
decreased by 50% and totaled $258 and related primarily to
accounting and legal fees of $120, board and fees of $69 and public
company expenses of $28. Professional fees for the first quarter of
2015 totaled $520 and related to accounting and corporate legal
fees of $158, board and advisory fees of $184, investor and public
relations costs of $110 and public company costs of $16.

Total general and administrative expenses decreased
by 51% to $229 for the quarter ended March 31, 2016 compared to
$466 for the quarter ended March 31, 2015. The decrease is
attributed to a decrease in marketing of $143 and was offset
slightly by increased depreciation and amortization of $20. For the
three months ended March 31, 2015, the Company incurred $143 of
marketing costs incurred in connection with the promotion of the
subscription business.

In addition, in connection with closing of Haystack
IQ business, the Company recorded approximately $575 in one time,
non-recurring restructuring charge. These costs consist primarily
of severance and other employee costs of $172, write off of prepaid
expenses of $69, accelerated amortization of $213 and other costs,
including obligations for leases, legal and allowance for doubtful
accounts of $121.

Critical Accounting Policies and Estimates

Our significant accounting policies are more fully
described in Note 2 to our consolidated financial statements. The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues, and
expenses, and the related disclosures of contingent assets and
liabilities. Actual results could differ from those estimates under
different assumptions or conditions. The Company's significant
estimates and assumptions include stock-based compensation and the
valuation allowance related to the Company's deferred tax
assets.

18

Liquidity and Capital Resources

Our current assets were $6.2 million at March 31,
2016, including $5.7 million of cash and cash equivalents. Working
capital amounted to $4.0 million as of March 31, 2016. We believe
that the reductions to operating expenses that we have made coupled
with our ability to further control discretionary spending and our
existing cash and cash equivalents on hand, is sufficient to meet
our liquidity needs for at least the next twelve months.

Cash used in operating activities was approximately
$154 for the three months ended March 31, 2016. During the
first quarter 2016, the Company spent approximately $676 on the
Innovation Business and $752 on corporate activities, and generated
cash of $1,274 million from its Licensing and Enforcement business.
Since inception the Company invested a total of approximately $5.9
million dollars in cash in Haystack IQ and its predecessor
business.

Contractual Obligations

We had no significant commitments for capital
expenditures and we have no committed lines of credit or other
committed funding or long-term debt as of March 31, 2016.

Off-Balance Sheet Transactions

We are not party to any off-balance sheet
transactions. We have no guarantees or obligations other than those
that arise out of normal business operations.

Recently Issued Accounting Pronouncements

On March 17, 2016 the Financial
Accounting Standards Board ("FASB") issued Accounting Standards
Update ("ASU") 2016-08 that amends the guidance for Principle
versus Agent Considerations (Reporting Revenue Gross versus
Net) in ASC 2014-09, Revenue from Contracts with
Customers (Topic 606), issued in May 2014. The ASU
clarifies that the principal or agent determination is based on
whether the entity controls the goods or services before they are
transferred to its customer.Public
entities must apply ASU 2014-09 to annual reporting periods
beginning after December 15, 2017, including interim reporting
periods within that reporting period. Nonpublic entities will be
required to adopt the amendments for annual reporting periods
beginning after December 15, 2018, and interim periods within
annual reporting periods beginning after December 15, 2019. Earlier
application is permitted for both types of entities only as of
annual reporting periods beginning after December 15, 2016,
including interim reporting periods within that reporting period.
Early adoption prior to that date is not permitted. We are
evaluating the effect that ASU 2016-08 will have on our
results of operations, financial position or cash flows.

In March 2016, the FASB issued ASU No. 2016-09
("ASU 2016-09"), "Compensation-Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting." ASU
2016-09 will affect all entities that issue share-based
payment awards to their employees and is effective for annual
periods beginning after December 15, 2016 for public
entities. The areas for simplification in ASU 2016-09 involve
several aspects of the accounting for share-based payment
transactions, including the income tax consequences, classification
of awards as either equity or liabilities, and classification on
the statement of cash flows. We are currently evaluating the effect
that ASU 2016-09 will have on our financial position and results of
operations.

Item
3. Quantitative and Qualitative Disclosures about Market
Risk.

Not applicable.

Item 4. Controls
and Procedures

Disclosure Controls and Procedures

As of March 31, 2016, we conducted an evaluation,
under the supervision and participation of management including our
chief executive officer and chief financial officer, of the
effectiveness of our disclosure controls and procedures (as defined
in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act
of 1934, as amended). There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures.
Accordingly, even effective disclosure controls and procedures can
only provide reasonable assurance of achieving their control
objectives.

Based upon this evaluation, our chief executive
officer and chief financial officer concluded that our disclosure
controls and procedures are effective at the reasonable assurance
level as of March 31, 2016.

Changes in Internal Control over Financial
Reporting

There were no changes in our internal control over
financial reporting during the quarter ended March 31, 2016 that
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.

19

PART II - OTHER
INFORMATION

Item 1. Legal
Proceedings.

As described in our Annual Report on Form 10-K filed
with the SEC on March 15, 2016, on April 11, 2011 Walker Digital
filed suit alleging infringement of one or more claims of U.S.
Patents 5,884,272 and 5,884,270 in the United States District Court
for the District of Delaware, Docket No. 11-318. A complaint was
filed against MySpace, Inc., News Corporation, Friendster, Inc.,
LinkedIn Corporation, Buckaroo Acquisition Corporation, Criterion
Capital Partners LP, Google, Inc., Tagged, Inc., and Facebook, Inc.
The complaint seeks damages and a permanent injunction. Walker
Digital entered into a settlement agreement with Facebook, Inc. on
July 12, 2011, Tagged, Inc. on June 22, 2012, MySpace, Inc. on
December 9, 2011, Friendster, Inc. on March 12, 2012 and LinkedIn,
Inc. on May 20, 2013. Walker Digital dismissed each settling party
from this suit. The United States District Court for the District
of Delaware issued a ruling on September 3, 2014, invalidating the
patent and the suit was subsequently dismissed. On March 29, 2016,
the District Court granted Google's motion for fees in the amount
of approximately $76.

As described in our Annual Report on Form 10-K filed
with the SEC on March 15, 2016, on April 8, 2014, IH LLC filed suit
alleging infringement by Bed Bath & Beyond of one or more
claims of U.S. Patent 6,381,582 in the United States District Court
for the District of Delaware, Docket 14-448. The complaint seeks
damages for past, present and future infringement. On August 21,
2015, the District Court granted a Motion for Judgment on the
Pleadings by Bed Bath & Beyond, finding US Patent No. 6,381,582
Invalid under 35 U.S.C. Section 101. IH LLC subsequently filed an
appeal with the Federal Circuit challenging the District Court's
Section 101 Ruling. On April 7, 2016, the Federal Circuit affirmed
the District Court's ruling invalidating the patent. Also on April
7, 2016, Bed Bath & Beyond indicated it intends to seek
its costs of approximately $22 for both the District Court and
Federal Circuit proceedings from IH LLC.

As described in our Annual Report on Form 10-K filed
with the SEC on March 15, 2016, on January 22, 2015, Alstom Grid,
Inc. filed a complaint for declaratory judgment of non-infringement
of U.S. Patents 5,828,751, 6,282,648, 6,289,453 and 8,549,310
against Certified Measurement LLC, a subsidiary of IH, LLC, in the
United States District Court for the District of Delaware, Docket
No. 15-072. On February 5, 2015, Certified Measurement LLC filed a
counterclaim alleging infringement of one or more claims of such
patents seeking damages for past, present and future infringement.
This matter had been stayed pending resolution of Petitions for
Inter Partes Review filed by Itron, Inc. with the United States
Patent and Trademark Office before the Patent Trial and Appeal
Board, which Petitions were dismissed February 16, 2016. Since that
time, the stay has been lifted, but Alstom Grid filed a motion with
the Court to extend the stay pending resolution of Alstom Grid's
motion for invalidity under Section 101. Certified Measurement
opposed that motion and the case will proceed until the Court
issues a ruling on the Alstom Grid motion.

Item 1A. Risk
Factors.

Not required for a smaller reporting company.

Item 2.
Unregistered Sales of Equity Securities and Use of
Proceeds.

None.

Item 3. Default
Upon Senior Securities.

None.

Item 4. Mine Safety
Disclosures.

None.

Item 5. Other
Information.

On May 5, 2016, the Board of Directors of Walker
Innovation appointed Jonathan A. Siegel, who had previously served
as the Company's Chief Administrative Officer, General Counsel and
Secretary, to the additional offices of President and Chief Legal
Officer. In connection with this change, Mr. Siegel resigned the
offices of Chief Administrative Officer and General Counsel and the
Board of Directors appointed Edward Gomez as the Company's General
Counsel.

20

Item 6.
Exhibits.

The following is a list of exhibits filed as part of
this Quarterly Report on Form 10-Q.

Exhibit No.

10.1

Amendment to Shared Services Agreement between Walker
Innovation Inc. and Flexible Travel Company, LLC dated March 4,
2016 (filed as Exhibit 10.1 to our Current Report on Form 8-K filed
on March 31, 2016)*

31.1

Certification of Principal Executive Officer
Pursuant to Section 302 of The Sarbanes-Oxley Act of
2002.

31.2

Certification of Principal Financial Officer
Pursuant to Section 302 of The Sarbanes-Oxley Act of
2002.

32.1

Certification of Principal Executive Officer
Pursuant to Section 906 of The Sarbanes-Oxley Act of
2002.

32.2

Certification of Principal Financial Officer
Pursuant to Section 906 of The Sarbanes-Oxley Act of
2002.

101.INS

XBRL Instance Document.

101.SCH

XBRL Taxonomy Schema.

101.CAL

XBRL Taxonomy Extension Calculation
Linkbase.

101.DEF

XBRL Taxonomy Extension Definition
Linkbase.

101.LAB

XBRL Taxonomy Extension Label
Linkbase.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase.

*

Incorporated herein by
reference.

21

SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.